Wednesday, February 17, 2010

At the risk of being a called a Cassandra, or at best a contrarian, I will attempt to explain why the federal government’s HITECH Act and Meaningful Use (MU) incentive program is a wolf in sheep’s clothing and why the better response for a provider would be to run, don’t walk, from this wolf.

First let’s review the basics. When a hospital or physician’s practice purchases and implements an electronic medical record (EMR) or Computerized Physician Order Entry (CPOE) before 2011 and files with the federal Department of Health and Human Services (DH&HS) the yet-to-be-developed regulatory documentation to declare their meaningful use (MU), then starting in 2011 that provider will be potentially eligible for an MU bonus payment. For physician practices, that could amount to a total of $44,000 over three years. For hospitals, depending on the number of discharges, somewhere between $2million to $3.8 million total. These incentive amounts are to be paid over three stages, or years, starting in 2011.

On the other hand, if a provider does not implement an EMR or CPOE, or purchases and implements a system but cannot show meaningful use, then a penalty will be incurred on Medicare payments in years 2015 thru 2017. This penalty will be in the form of a reduction to the legislated increase in Medicare payments for that year. Note: this is not a reduction in overall Medicare payments, but a reduction on the yearly Medicare inflationary adjustment factor. The first year the penalty is a 33% reduction of the adjustment, the second 66%, the third 100% (or in effect, you will get no adjustment at all).

Before I explain why I believe there is a wolf at your door, let me say I am a believer in the benefits of EMRs and CPOEs. There can be significant benefits in both, but not unless they are incorporate a sound work flow re-engineering processes prior to installation. Unfortunately there are very few if any MUs that are workflow-focused.

There are at least four major reasons why I believe your facility will never see an MU bonus.

1) MUs are, by the DH&HS’s own admission, a moving target. As stated in the Interim Final Rule (IFR) published in the Federal Register, December 30, 2009, on page 314, “We expect to issue definitions of meaningful use on a bi-annual basis beginning in 2011”. Hence, MUs will evolve over time. That will allow DH&HS to make them as easy or as onerous as they choose. How can you predict you will hit a moving target that you can’t even describe today? And if you believe the Feds may try to make it easier to foster participation, read on.

2) If you hit all but one MU, will you get the full bonus, or 95%, or 50%? Nobody knows and the question is not addressed in any IFR or other documents. I am willing to wager you will get nothing, and my reasoning follows.

3) The federal government has stated they are funding the HITECH program with $34 billion for MU bonuses. They also have stated repeatedly they expect to save over $200 billion to help fund the new national health plan. That’s about a seven-to-one expected payback in only a few years. When was the last time you had a seven-to-one ROI on any IT project over three years? If the feds do not see the seven-to-one payback in time, how many providers do you think will get to cash an MU check?

4) Our government is under extreme pressure to cut the federal deficit. In the President’s recent State of the Union Address, he stated he will freeze the government budget for ‘non-essential’ items to save $250 billion, to alleviate the trillions of dollars in deficits predicted by the OMB. Essential is currently defined as Social Security payments, interest payments on debt, entitlement programs, Medicare benefits, and the defense budget. These taken together make up over 80% of the total government expenditures. So the freeze has to come from ‘non-essential’ departments and programs. Medicare payments to providers are not considered part of Medicare benefits, they come under the DH&HS /CMS department operating budget. So, although the benefits to the seniors will not be reduced, the payments to the providers are fair game. And therein lays our wolf.

I noted earlier that if you fail to purchase and install an EMR / CPOE, you will be penalized by a reduction in the increase in Medicare inflationary adjustment in future years. Based on the above reasons, I believe there will be little or no adjustment increase in future years. If you don’t think this will happen, look at what Congress and DH&HS had allocated for the adjustment ‘increase’ in 2010 for physician Medicare payments. DH&HS wants to apply a -21% adjustment for physician payments. Yes, that’s minus twenty-one percent. Then, to get the AMA on board with the national health initiative, the Administration and Congress was going to delay this adjustment, but now even that agreement is up in the air.

On the hospital side of the world, look at what the Medicare adjustment increases have been over the last five years. The most they have been is 2% and the average is around 1%. If you run those numbers for a typical 200-bed community hospital with a Medicare utilization percent of 50%, the one percent increase amounts to about $300,000. Hence, reduce it by a third and you will miss out on $100,000 that year. Again, and that’s assuming there is any increase at all in future years.

Lastly, let history be your guide. I have worked in the healthcare world for 35 years as a CFO, CIO and multitude of other roles. As a CFO, I saw Medicare renege on many case mix adjustments, TEFRA adjustments, and DRG adjustments,all in the name of national budget deficits and health care cost controls. At one point, they set up a Medicare Payment Advisory Committee, then disbanded it when the Committee disagreed with too many DH&HS adjustment policies. I doubt the future will be much different, in fact probably worse.

So, run the numbers again, in future years if the Medicare adjustment increase is zero – because the feds and DH&HS say we can’t afford an increase due to overall deficits and budget freezes, then reducing the zero adjustment increase by 33% will incur how many penalty dollars?

What’s a shepherd to do?

The bottom line is there is no need to “horse in” a new EMR/ CPOE regardless of what vendors say. Secondly, horsing in a system as complex and far-reaching as EMR/CPOE and while hitting the expected glitches along the way is going to cost you far more than any Medicare adjustment penalty.

My advice … take your time, do it right ,and install components that will give you the most ROI the fastest. And watch out for the wolves.